11/13/2009 @ 6:00AM

Layoffs Sting Big Pharma

After
Merck’s
merger with
Schering-Plough
closed last week, top executives fanned out across the world to reassure nervous employees.

Merck
Chief Executive Richard Clark visited Merck’s birthplace in Rahway, N.J., and Schering’s old headquarters in Kenilworth, N.J., before returning to Merck’s headquarters in Whitehouse Station, N.J., where workers assembled to greet him on three levels of a giant glass atrium.

Marketing head Kenneth Frazier talked to employees in Mexico, while research honcho Peter Kim jetted off to the Netherlands and Chief Financial Officer Peter Kellogg went to Tokyo. The meetings were simulcast around the world to half of the combined company’s employees to “visually demonstrate that we are all one company,” says Amy Rose, a Merck spokeswoman.

Merck’s workers can use a pep talk. One out of six of them–16,000 researchers, sales representatives and manufacturers–will lose their jobs as a result of the merger. Those who remain will have to deal with ever-increasing restrictions on drug marketing, dwindling prospects for some of Merck’s biggest sellers and the industrywide drought in new-drug development.

It may get worse. Monday, cardiologists will present data from a key new trial comparing Merck’s blockbuster cholesterol drug Zetia to a form of niacin. Sales of the drug are already down 25% in the wake of a major trial showing the drug may do little for clogged arteries. If Zetia performs badly in the new head-to-head trial, sales could plummet even more.

Merck is hardly alone. Overall, drug companies have announced 58,696 job cuts through October, according to Challenger, Gray & Christmas, the biggest toll ever.
Pfizer
is shuttering six research sites and cutting 20,000 jobs in the wake of its $68 billion acquisition of
Wyeth
. The new, combined company will employ fewer chemists than Pfizer alone did before the deal, according to the research blog In The Pipeline. Pfizer could not immediately verify this. Between them, Pfizer and Merck are laying off as many people as are employed by
Bristol-Myers Squibb
.

Meanwhile,
Johnson & Johnson
, usually seen as stronger than other pharma companies because of its diversified businesses in medical devices and consumer products, recently announced it is cutting 8,000 jobs, 7% of its total workforce.
Eli Lilly
is cutting 5,500 jobs, or 14% of its employees.

New drugs don’t sell the way they once did. Pfizer’s anti-smoking pill, Chantix, was one of the biggest new drug launches in years, until worries about depression, strange behavior and suicide led sales growth to go up in smoke.
GlaxoSmithKline’s
Tykerb breast cancer pill has hardly made a dent in Herceptin, the decade-old
Roche
medicine it was designed to compete with. Data from IMS Health show that over time, the sales generated by a new drug launch have gone down. (See “The Value of New Drugs Is Dropping.”)

One problem appears to be that the industry mistook an unusual bumper crop of new medicines in the late 1990s and early 2000s as a permanent improvement. But since then, the annual number of new drugs approved by the Food and Drug Administration returned to about what it was in the 1980s: around 25 per year.

One of the research sites Pfizer is closing is a gleaming $294 million new lab in New London, Conn., that was supposed to be a showcase for the company. In 1998, at the height of its glory, Pfizer announced plans to build the New London lab on a site contaminated by an old mill. State officials granted the company land at little or no cost. Connecticut’s governor said the lab was “proof that our business climate is competitive again.”

Land was seized from private homeowners to make way for the new development. One stubborn homeowner sued and brought the case all the way to the Supreme Court. She lost the case in a controversial 2005 decision.

Where her home once stood, there is a vacant lot. Now Pfizer is leaving the lab vacant as well.